Hello all. Over the next few days and weeks, I’ll be updating this page with information that I have come across and that I trust. I know this is serious stuff. I am working hard to keep my finger on the pulse on the entire migration of Covid-19 across the world. Today I’d like to start with a few issues that are frustrating me about this situation:
The mass hysteria that has crashed our economy;
How this health crisis has been politicized at the expense of focusing on solutions (come on people, stop it);
How the media likes to pretend that they have any qualifications to give the public medical advice;
How, as citizens, the public can't keep themselves at home to slow the surge of this virus that will cross our mainland totally and completely like it has crossed Asia, Europe, and the United Kingdom;
How we suddenly have two groups of people: the ones that believe the sky is falling and the others who have their collective heads in the sand;
How instead of staying at home, many are out buying more guns and ammunition (I would like to remind all of us that we are not being invaded by aliens from another planet but by a very malleable virus;
Finally, how this hysteria has our citizens buying out and hoarding not just paper products but medical supplies that all of us in the health care system need to protect ourselves as we stand on the frontline taking care of all of you.
As a health care provider, I will not run away, I will not abandon my duties to all of you. Please, for the sake of us all, please bring any gloves and masks back to the doctors’ offices and hospitals so we can use them — we actually need them.
That said, let’s put this crisis in perspective.
First, Covid-19 is bad, but the overall mortality rate isn’t as high as so many other conditions. This isn’t a solution, but it indicates that we have faced worse in the past and will likely face worse in the future.
Second, market volatility will continue but it won’t destroy our economy. I am not a financial adviser, but I would like to share the following: the market will come back, it always comes back. As my daughter Erika put it, “If this is the end of the world, the market then doesn't matter.”
Quite frankly, I am not afraid. The United States is the land of the free and home of the brave, and we have shown generation after generation that necessity truly is the mother of invention. We will be ok; I am sure of it. Now everyone, believe with me (and please, bring our gloves and masks back to us!).
I’d like to share an article and the author’s personal story to put all of this in context.
Pandemic Panic and What to Do Now
By Tyson Smith, AAMS®, AIF®, CRPC®, CRPS®, WMS, First Vice President - Investments
It seems the National Media Companies are in competition to see who can create the scariest headlines regarding the COVID-19 viral infection and the information being presented is consistently inconsistent. Capital Markets are experiencing violent variability and have fallen nearly 30% off their most recent peaks at the time of this writing. Our offices are actively supporting client needs and responding to questions while continuing to conduct research and monitor portfolio changes and opportunities.
In many cases, I’ve found that the general population is confused and misled; seeking guidance on how best to respond to this threat. One friend sent me a message stating that stated they “received a message from a family member who received a message from a friend, who received a message from a reliable source, who had also received a message from a very reliable source, who had been in a White House meeting and heard that the President was going to invoke the Stafford Act and use it to declare a National Lockdown.” After a quick Google search, anyone reading this paper can search “Stafford Act Hoax” and the internet will show that this message is clearly false and that it doesn’t give The President this power.
Here are the facts. The Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the “Stafford Act”) was not going to be invoked, because it already was on March 13th. The Stafford Act isn’t intended to be used to create Martial Law. It’s designed to allow FEMA to directly assist state and local governments by tapping into a $50 billion fund earmarked for disaster relief. It’s frequently used by Presidents in times of emergency and Trump has used it before when dealing with Hurricane Maria and the California wildfires. President Clinton also used it in 2000 to help combat outbreaks of the West Nile virus.
According to the Center for Disease Control, the CDC (), the virus we’re currently combating is named “SARS-CoV-2” and the disease it causes has been named “coronavirus disease 2019” abbreviated to COVID-19. The International Health Regulations Emergency Committee of the World Health Organization (WHO) declared the outbreak a “public health emergency of international concern” on January 30th of this year. The following day, Health and Human Services Secretary Alex M. Azar II declared a public health emergency (PHE) for the United States. On March 11, the WHO publicly characterized COVID-19 as a pandemic. Two days later the President of the United States declared the COVID-19 outbreak a national emergency.
This virus originated in Wuhan, Hubei Province, China and many of the early patients had some link to a large seafood and live animal market; suggesting animal-to-person spread. Later, a growing number of infected persons didn’t have ties to the market, supporting the theory that person-to-person transmission was possible. Additional information from the CDC can be found on their web site (). If you would like the longer link to the specific article on COVID-19, please feel free to drop me an email and I’ll pass it along.
The World Health Organization also maintains a dashboard with a listing of all cases, deaths and countries/areas with cases. As of March 17th; there are 184,975 confirmed cases spread across 159 Countries, Areas or Territories with 7,529 resulting deaths. The total number of cases in the United States is listed at 3,536; slightly less than 2% of the total confirmed cases are within the U.S with only 58 resulting deaths (1.6%). These numbers are expected to climb as testing kits have become more readily available and more people are discovered to have contracted the virus. For comparative purposes, I also pulled data on other infectious diseases from the CDC.
Disease/Infection (U.S. Deaths in 2017)
Influenza AKA “The Flu” & Pneumonia (55,672)
Stroke (Cerebrovascular diseases) (146.383)
Unintended Injuries (169,936
Heart Disease (647,457)
COVID-19 (2020, so far) (58 / 114 via WHO/Johns Hopkins)
Rapid and Decisive action by leadership in the United States seems to have put the United States in a very good place regarding this threat. Initially, the decision to limit flights from China was criticized in the media but the resulting fatality levels seem to have justified the quick response. By comparison, Italy wasn’t as proactive as the U.S. and now has 27,980 confirmed cases and 2,158 resulting deaths. Only China has more cases than Italy at this point. This link will take you to the interactive WHO dashboard.
Johns Hopkins University is also publishing regular updates on the spread of COVID-19 and their numbers are different from those published by the World Health Organization. In fact, they’re higher…so that’s the number you’ll typically hear from the news media as it tends to be more of an alarmist message. They currently list the Total Confirmed cases in the U.S. at 6,496 with 114 total deaths. They’re also more granular and break down the data in the United States to the individual states. Interestingly, they also publish the number of Total Recovered infected persons, which is currently listed at 81,961 globally (17 in the U.S.). To see their interactive data map, please use this link.
Here are some additional facts about epidemics and the resulting market conditions. I pulled this data from Dow Jones.
Epidemic Month End 6-month % change of S&P 12-month change of S&P
HIV/AIDS June 1981 (0.3)% (16.5)%
Pneumonic Plague September 1994 +8.2% +26.3%
SARS April 2003 +14.59% +20.76%
Avian Flu June 2006 +11.66% +18.36%
Dengue Fever September 2006 +6.36% +14.29%
Swine Flu April 2009 +18.72% +35.96%
Cholera November 2010 +13.95% +5.63%
MERS May 2013 +10.74% +17.96%
Ebola March 2014 +5.34% +10.44%
Measles/Rubeola December 2014 +0.20% (0.73)%
Zika January 2016 +12.03% +17.45%
Measles/Rubeola June 2019 +9.82% n/a (TBD)
Investor Responses to the Market
Several months ago, we hosted Jeff Saut at a conference. Mr. Saut has been in the financial industry a very very long time and has a wealth of experience. During his commentary he stated that huge market pullbacks like this only come along a few times during our investing lives and most of the time, we miss them. I agree with Jeff and here’s what I’ve seen.
First Timers: Generally, the first time we see it, we’re young, and don’t have the funds to capitalize on the market pullback. By the time it’s over, it’s a story of “I wish I could’ve.”.
Second Timers: The second time we see it, most folks have already been putting funds into investment accounts either through 401(k)’s, IRA’s and other vehicles. Still young and inexperienced, the initial instinct will be to sell everything and move to cash. “I’ve worked too hard to build this nest egg and need to stop the bleeding while there’s still something left. I’ll buy back when it’s better.” This type of inexperienced thinking results in selling low and buying back higher. (the opposite of good investing) or, worse yet, they put it in illiquid real estate instead of using smart leverage. Second Timers are most at risk during a pullback because of the impact they will have on themselves, not because of the market. By the time they’ve made up their mind to reinvest, most of the opportunity has already passed.
Third Timers: These are the folks who generally hit it big. They’ve been here before and know how the movie ends. They know that the equity markets have never ever gone down and stayed down. They know that these big pullbacks are rare and create huge value for the brave. They’ve heard and heeded Baron Von Rothschilds advice and they buy. They call their advisor often. They buy smart and they buy big. They look for new money in any place they can find it and get it invested wisely. When the dust settles…. these are the people who win big.
Fourth Timers: If someone is lucky enough to see a fourth major pullback in the equity markets during their investing lives, it’s generally a foregone conclusion that they’ll be backing up the truck and loading up on their financial advisors strongest recommendations. They may not be quite as aggressive as the previous pullback but they know this fourth event can end up creating a legacy for future generations, pay for grandchildren’s college and create the means to be philanthropic on a large scale. It can be a game changer for their legacy and their family.
Sometimes, these pullbacks can last for years. I saw this in 2000, 2001 and 2002 as we came out of the late 90’s and the dot-com bubble. During those years, we saw -10.14, -13.04 and -23.37 returns out of the S&P 500. These were followed by a 5-year run to the upside. Other times, it’s much quicker, as we saw in 2008’s -38.49% drop, which was also followed by several strong years compounding upon each other; 6 of the ensuing 8 years ended up with double digit returns. The two years that were flat to down ended up with less than a 1% move.
That brings us to today. What to do now, based upon economic conditions as they currently exist?
Let me open by saying that these are my opinions based upon 22 years in the industry and all my previous experience. There’s no guarantee that my expectations will come to pass but I’ll share my thoughts, analysis and expectations.
There are currently two major issues impacting the equity markets. One is COVID-19, dubbed the “Coronavirus”. The second is an Oil War between Russia and Saudi Arabia/OPEC.
The Equity Markets
As of this writing, the S&P 500 is nearly 30% off its peak and oscillating in large swings on a daily basis. These types of volatile swings tend to happen at times the market is trying to reverse direction and we see it often at market tops and market bottoms. As we’ve just experienced a sizeable drop, this may be indicating that it’s trying to reverse course and head back up.
Markets pull back all the time. Sometimes it’s a simple 2% down day and other times, it’s a larger attention-getting number. Still other times, it becomes a pretty significant correction and big headlines are made. This chart, compliments of my partners at J.P. Morgan, illustrates two numbers for every year going back to 1980. The first number, above the gray bar each year, represents the final performance of the S&P 500 index for that year. The second number, below the red dot, illustrates the intra-year decline off of its high during the year. For example; in 2019, the S&P 500 was up 29% but during the year, there was a moment when it had fallen 7% off its high. That doesn’t necessarily mean the index went into negative territory and in many cases it didn’t, it simply means it pulled back and dropped. What I find interesting is the reactions to these pullbacks when they occur. 1998 is a great example of a fantastic year; ending up 27% but at one point, there was a 19% pullback. Talk about nerve-wracking!
So, what do we do now? Well, I have a story I’d like to share.
Several weeks ago, my daughter Taylor, who is a sophomore in college, called and asked if she could bring some friends home to Florida for Spring Break. We thought that would be really cool and told her to come ahead and bring as many friends as she wanted. As the weeks went by, the trip got finalized and this Spring Break trip ended up including 20 of the runners from her track team for 6 days, after which they would drive north to Myrtle Beach and run in a track meet. Twenty college-age visitors for 6 days seemed like a bit much so we suggested that a concurrent rental might be wise. There were 10 boys and 10 girls so we decided to host the ladies and suggested the gentlemen stay at an Air BNB rental. Besides, I didn’t want to sit up all night with a shotgun in my lap making sure there was no funny business.
Their arrival date was scheduled for Saturday, March 7th (pre-pandemic) and their departure would be on the 12th. We just had a few things to get done in preparation. As we did our final shopping, I was commenting on how much of everything we were buying. I mean, I understood that we would need enough food to feed a platoon but “All these paper towel rolls? All this TP?” My lovely wife just smiled and said “It won’t go to waste and we definitely don’t want to run out.” Made sense to me. It was something that we just wouldn’t have to worry about during the visit which would allow us to focus on other more important matters while they were here.
So, when #toiletpapergate and #toiletpaperapocalypse started happening, I was really interested but completely understood the psychology behind this trend. When you don’t have control of most things in a situation, people feel better checking off those little things that “might” be an issue later on.
The psychological impact of this infectious spread has been very interesting to observe. Unlike a hurricane, tornado or other natural disaster, there isn’t a clear course of action that can be taken. Stocking up on water or installing storm shutters won’t do any good. Power isn’t expected to go out nor will we be trapped in our homes for several days. There won’t be physical damage with which to contend once it passes nor will we be prevented from returning to our normally operating lives for an extended period of time. People need to do something though. For now, apparently it’s time to stock up.
By the way, we still had 39 rolls of toilet paper in our pantry after the ladies left.
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Dr Wanita Patterson DNP ARNP
Modern Medical & Wellness